“Legally Valid” is Not a Tough Threshold to Meet
These days it’s hard to listen to the radio, watch television or go on-line without being inundated by ads pitching the latest and greatest do-it-yourself, on-line, estate plan documents: who needs those money grubbing lawyers anyway? One thing all of these pitches have in common is the assurance that the forms are legally valid and binding. Truth be told, “legally valid” is not a tough threshold to meet. If the person signing the Will (or trust, or, you name it) has the requisite mental capacity under the laws of the state where the document is being signed, and the document is signed, witnessed, or notarized in accordance with the laws of the state, it is legally valid. Legal validity, however, is only part of the story. Imagine the shock years down the road when it is discovered that an estate plan put in place by well meaning parents, intending to provide for each other and their children upon their disability and eventual deaths, does nothing of the sort.
I recently had the opportunity to help a young couple with very small children, where one spouse was facing a life threatening illness. They were referred to me to review their revocable living trust. I was under the impression that it had been drafted by another lawyer, and, therefore, my initial review was not clouded or prejudiced in any way. As I went through the document I was appalled at what I perceived to be the utter incompetence of a fellow practitioner, and, quite frankly, dumfounded as to why and how any attorney could pass something like this off on unsuspecting clients. The document was grossly deficient in a number of particulars, and, more importantly, would not have accomplished the desired result of providing for the surviving spouse and children upon the disability or death of one of the parents. It was then that I learned that in their haste to insure that the surviving spouse and children would be provided for, the couple turned not to a lawyer, but to one of the popular on-line sites for their estate planning needs, which included a revocable living trust (for which they paid a fairly sizeable sum I might add).
To enumerate and explain the deficiencies in the document would exceed the space allowed here, so I’ll only touch upon three, specifically:
- form
- concept, and
- substance.
First, from the standpoint of form, although touted by the website to be a Michigan specific document, the terminology used was not consistent with, or reflective of, Michigan law. This past April 1, 2010, the Michigan Trust Code went into effect, changing many aspects of Michigan trust law. Those changes had not found their way into the document.
Second, the document was premised upon property law concepts that are not followed in Michigan. Admittedly, this is where the explanation can get technical and complicated, so I’ll convey only the basics. Insofar as property ownership between a husband and wife is concerned, 40 states follow concepts derived from, and based upon, English common law. There are 10 states, however, that characterize property owned by a husband and wife pursuant to concepts that can be traced to French and Spanish civil law. Those states are said to be “community property” states. And, even within these groupings of common law and community property law jurisdictions, there are many variations. The salient fact remains, however, that property owned by a husband and wife is treated differently in community property and common law jurisdictions. Michigan is not a community property state. Yet, this document, although touted to be a Michigan specific document, employed community property terminology and concepts.
Lastly, there are many reasons why people need estate plans, and trusts in particular, ranging from tax savings to probate avoidance. For people with children, the primary need for a trust is to provide for the children upon the death or incapacity of one or both parents. Without a trust, minor children will receive their inheritance when they turn 18; all of it. Because that is rarely a good idea, trusts are the means of providing a method for holding property and administering it for the benefit of the children according to a detailed plan of distribution determined by the parents, in advance. The trust document I was asked to review contained none of these provisions. Although this couple had a number of children, upon the death of the second spouse to die, the trust assets would simply be held for distribution to each child as he or she turned 18. The document contained no provisions for the administration and distribution of the trust property for the care of the children while they were young.
Was this a legally valid and binding trust? It was. Would this trust have fulfilled the intentions and desires of this young couple and the needs of their family? Not even close. The problem is that they had no way of knowing that. For users of these on-line documents, it will be years or decades before the ultimate beneficiaries will learn just how bad the documents are. Merely filling in the blanks on a form is no substitute for the expertise of an experienced estate planning attorney. There is a reason why we dedicate our working lives and energy doing what we do.
Dan A. Penning
I’ll set this in the context of a real-life example. Some of you still make periodic trips down to the Gulf Coast to help with post-Hurricane Katrina recovery efforts. If you are going down as a volunteer with a charity and your out-of-pocket expenses are not reimbursed, then your travel expenses and possible other expenses can be deducted as long as they are properly documented. This is true whether you’re a laborer building houses, or a board member attending meetings.
We tend to throw the term “hero” around loosely, ascribing it to everyone we admire or look up to. A hero, traditionally understood, belongs to a far narrower subset. A hero is someone who willingly places him or herself in harm’s way to protect the safety of another or the public good.
As we close another Memorial Day weekend, I hope you take a moment to remember the fallen heroes from Boston Commons to Baghdad who offered their best for all of us.
Recently, many of my firm’s clients who own multiple acres of land in northern Michigan have been contacted by petroleum company representatives and offered oil and gas rights leases for their land. While many of these companies are reputable and offer fairly standard terms in their leases, they are generally trying to secure leases that are most favorable to them. The landowner should be aware of provisions that can be included to protect their investment and maximize the owner’s financial return.
A “Pugh Clause” protects the landowner by requiring the oil and gas company to release certain land subject to the lease after termination of the lease term that has not been pooled into the land subject to the royalty payment in the event an active well results from the lease and exploration. For example, an oil and gas company may only pool an apportion of the leased land for royalty purposes and without a Pugh Clause, the companies in some instances can tie up the entire parcel subject to the lease even though they are only paying royalties on a portion of the land.
A large portion of the businesses in the United States are closely held companies, and many of the closely held companies are family owned enterprises. The long term perpetuation of the family business is a common and laudable goal of most founders. Developing strategic and successful transitions to subsequent generations largely centers on who will control the company and whether the control will be concentrated in one family member or a small group of family members, or if the control of the company will be spread out among a large group of family members or all the family members. Limiting control to a sole shareholder or a concentrated group of shareholders that are involved in the company is usually the preferable option. The founder’s decision to select the most advantageous successor(s) is hardly adequate, however, and many founders approach this first order of business tepidly and do not make the difficult decision due to the attendant consequences that include a possible disruption of the business and family relationships. A successful transition inevitably involves addressing the possible conflicts that will arise within the company itself and among the family members involved. Conflicts can emerge from the most expected and unexpected sources, and a founder that is willing to plan for and manage potential conflict will provide a more secure foundation for the business to continue successfully beyond his or her lifetime.
Lawyers provide legal advice in these unfortunate situations, however, lawyers also have a unique perspective in that we also see successful family enterprises implement transition plans that go beyond the necessary buy-sell agreement. Successful family transitions are usually the result of cultivating cooperation, understanding, and forgiveness amongst family members. Founders who succeed at fostering personal growth and character development, including honesty, respect and leadership alongside teaching business acumen generally observe a more successful and peaceful generational transition of the control of their business. The founders themselves must make a deliberate and long term dedication to cultivating a family culture that brings in and nurtures the emotional intelligence necessary to perpetuate a successful family business. There are a myriad of resources available to business owners who desire guidance in this area. The Family Firm Institute, Inc. is an excellent starting point. The attorneys at Wright Penning & Beamer are committed to helping our clients successfully transition their businesses to the next generation, and we can provide you with resources that will complement a comprehensive buy-sell agreement.
The Patient Protection and Affordable Care Act was enacted in March of 2010. One of the first provisions to go into effect from the Act is the small business health care tax credit. The purpose of the credit is to encourage small businesses to offer health insurance coverage to their employees for the first time or maintain coverage they have, and to help small businesses that employ primarily low- to moderate-income employees.
If for 2010, your total number of employees is less than 25, the average annual wages is less than $50,000, and you satisfy #3, the credit is likely available to you. The maximum credit, which goes to employers with 10 or fewer full-time equivalent employees and annual average wages of $25,000 or less, is 35 percent of premiums paid by eligible small business and 25 percent of premiums paid by eligible tax-exempt organizations.
A Michigan State Police Lieutenant made news recently when he confirmed publicly a fact many have long suspected: in many places throughout the state, speed limits are set artificially low. Speed limits that are too low result in speeding tickets which equate to revenue for cash strapped local units of government. This assessment was then confirmed by a local police chief whose jurisdiction includes a stretch of one of the most heavily traveled roads in the state. As the road crosses into his city, the speed limit drops to a point that, as he admits, likely cannot be justified. The city has no intention of raising the speed limit, however, because of the revenue it generates for the city. A state lawmaker believes that the problem of artificially low speed limits has gotten so out of hand that he has introduced legislation that will force local communities to correct speed limits that are set too low. The question then becomes, how are speed limits set in the first place? 
The right to set speed limits is an exercise of the police power of the state and is therefore justified on the basis of public safety. Speed limits are intended to reflect a reasonable and safe speed that will facilitate the safe and orderly flow of traffic under normal conditions. Research has shown that the majority of motorists operate their vehicles in a safe and reasonable manner, hence, traffic laws and speed limits that reflect the behavior of the majority of motorists are the most successful. The inverse is also true: traffic laws and speed limits that arbitrarily restrict the majority of motorists encourage violations, lack public support and rarely achieve the desired result. Speed limits are not to be set based upon unreasoned opinion but upon thorough traffic engineering studies. Those studies include an analysis of such factors as the number and types of accidents that have occurred, the number of cars traveling the road, their speeds, the presence of pedestrians, the physical condition of the road surface, hills, curves, number of lanes, driveways, intersections, and so on.
While realistic speed limits are generally followed, unrealistic speed limits are not. Absent strict, continuous, and visible enforcement, artificially low speed limits will be ignored. And any adherence that does result is limited to the immediate time and immediate area of the enforcement (i.e., speed traps). If you find yourself getting a ticket in an area where the posted speed limit just doesn’t seem to make sense, you might consider asking the municipality for a copy of the traffic control order and the engineering studies upon which the speed limit was based. If the speed limit is not within 5 mph of the 85th percentile speed, and, no other unique and distinguishing factors exist, you just might have a defense. You might also want to keep an eye on the pending legislation.
On May 1, 2010, the “Dr. Ron Davis Smoke-Free Air Law” went into effect in Michigan. Smoking is now banned in most public buildings in Michigan and in outdoor areas where food or beverages are served, such as restaurant patios and porches.
As we approach the season of high-school proms, graduations and graduation open houses and parties, it is important to remember the basics concerning alcohol, minors and underage drinking. What may seem like a harmless or innocent circumstance in providing a minor with an alcoholic beverage can result in negative consequences lasting a lifetime to both the adult and the minor child.
The laws are simple. First, it is against the law for a person under the age of 21 to consume any alcoholic beverage or have any bodily alcohol content period. If a minor child is determined to have consumed an alcoholic beverage or have any bodily alcohol content, they can be charged with a misdemeanor leading to fines, court-ordered substance abuse counseling, and in the case of multiple violations or offenses, up to 90 days in jail. You may have heard that many police agencies have made enforcement of the “minor in possession laws” (”MIP”) a top priority. There is typically a zero tolerance by police officers who have reason to believe a minor has consumed or is in possession of alcohol.
The rules are simple. The consequences are clear. Underage individuals who drink alcohol, and the persons who provide them with the alcohol, will face severe consequences. It is important to keep these important facts in mind when planning your upcoming graduation celebrations.
After seventeen years practicing law, I find that most business clients appreciate the services I have to offer and are willing to pay a fair fee for them. But I have yet to meet a client who feels at all inclined to pay the legal bill of a competitor who has just sued. That’s like being thirteen and kissing your sister. Yet when corporations sue each other over the alleged theft of a valuable employee, the dispute can quickly become a fight over attorney fees.
If the competitor goes to the trouble of suing you, it will probably bring every plausible claim available against you. In non-compete cases, this usually involves a claim that the employee and you have conspired to steal the competitor’s trade secrets and proprietary information. In most lawsuits between business competitors, each side pays its own legal expenses – win, lose or draw. But under Michigan’s version of the Uniform Trade Secrets Act, a prevailing plaintiff can recover attorney fees if it shows that the defendant willfully and maliciously stole a trade secret.
Obviously, the judge’s decision on the injunction will either strengthen or weaken the suing party’s claim that you acted maliciously. Either way, both sides will need to consider carefully how much more legal expense they are willing to incur solely to fight over who should pay the fees to date. If the case appears ready for settlement even before the judge rules on the request for an injunction, you still may face a fight over attorney fees. I have seen plaintiffs with no real damages become all the more insistent that they recover attorney fees as a matter of principle to ensure that the perceived misconduct does not go unpunished. If you are defending, do you buckle and pay some portion of the other side’s fees, or do you hold ground as a matter of principle? If you hold fast, you may end up paying far more money in the long run, albeit to your own attorney rather than to your competitor’s. As a colleague once told me, “It is perfectly appropriate to stand on principle, once you have acknowledged that principle is expensive.”
